PUERTO RICO REPORT

Terrorist Attacks Inflict Pain On Puerto Rico

by Robert Becker

Puerto Ricans have been dealt a heavy blow from the terrorist attacks of Sept. 11, with as many as 800 feared lost in the World Trade Center catastrophe. Many islanders lost relatives and friends in the attacks.

Apart from the human tragedy, the islands economy is also feeling the shock waves from the explosions. Based on past experience, the slide in Puerto Ricos economy is likely to be steeper than that of the United States, and the recovery promises to be slower.

The hardest hit sector is tourism, which accounts for some 6 percent of the total economy. Tourism in Puerto Rico today is in free fall.

After Sept. 11, cancellations flooded the island. Tourists were afraid to fly, and they also were in no mood to relax after the horrible tragedy. Moreover, heightened security measures have made flying onerous for the few who were wiling to venture onto an airplane.

Puerto Rico is now in its off-season. Hotels occupancy rates dip at this time of year, but the bottom has fallen. Since Sept. 11, hotels report, they have been at 10 percent to 20 percent.

Especially hard hit are the large hotel properties that rely on group convention business. The big hotels reported cancellations of much of their group business for the next few months, with little prospect of recouping the business through the local market.

On Sept. 26, an official of the local hotel industrys trade organization said 1,600 employees have been laid off due to the downturn.

The dramatic drop has sent ripples through the sector. The cruise ship industry, long an anchor of the Puerto Rico tourism market, is suffering from cancellations because their clients need to fly to San Juan to begin their trips.

Restaurants have also began to feel the effects, and are laying off employees or cutting hours. Taxi drivers, who cluster at the airport by the hundreds, limousine and tour bus services and car rental agencies are also affected.

The industrys beleaguered travel agents, already hard hit by a reduction in their commissions by the airlines, are asking the federal government for relief, much like the airlines.

As San Juan is a hub for American Airlines, that companys announcement of massive layoffs is also expected to impact the island.

Empresas Santanta, an airport-based business that provides cleaning and catering services to the airlines, announced it was laying off 300 employees as a consequence of the down-turn.

The short-term prospects for recovery are unknown, dependent as it is entirely on the psychology of air travel and vacation planning, both hard hit by the terrorism.

Puerto Ricos physical distance from the United States -- some 1,000 air miles from Miami -- have also intensified the effects of the attack. The disruptions in air traffic caused broad damages across a range of industries dependent on air freight. On of the islands leading poultry producers could not import the number of eggs it needed after Sept. 11. Company officials predicted shortages of chicken, and higher prices were expected to follow.

The outlook for consumer spending is uncertain, but the terrorist attack is certain to have some impact on island spending patterns. The blow is also magnified by the backdrop against which it happened -- since the beginning of the year there has been a slowdown of the Puerto Rican economy, punctuated by thousands of layoffs in the manufacturing sector.

One of the means by which the administration of Gov. Sila M. Calderón had hoped to restart the economy has also been overtaken by events. Her administration had been pointing to securing federal tax incentives for investors in Puerto Rico in 2002 -- the so-called section 956 amendments -- but that prospect, like thousands of other federal budget issues, will be overshadowed by national economic recovery. Any action on that front has been dimmed considerably by the cacophony of competing demands to be placed on the federal government by the direct victims of the terrorist attacks, particularly the airline industry.

Puerto Rico is not alone in that is suffering from the effects of the terrorist attacks. But the island is in a particularly vulnerable position, as disruptions in the U.S. economy, such as the 1973 oil price shocks, are magnified in the islands fragile economic structures. Moreover, Calderóns anti-military posturing over the past eight months have taken on an especially distasteful tone for those in congress who may have otherwise been inclined to extend a helping hand.

Robert Becker, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: dkarle@coqui.net